SanDisk upgraded on 16/32GB flash video iPod rumors

Shares of flash-memory maker SanDisk rose over 1.3 percent on Tuesday after one Wall Street analyst said Apple Inc. is working on two new NAND flash-based video iPods that should help strengthen pricing in the overall flash market during the second half of the year.

"Our research suggests Apple is in the process of coming to market with 16GB and 32GB iPod Video solutions based on NAND flash," UBS analyst Alex Gauna wrote in the firm's second iPod-related research note of the day. "By our calculations, this eventuality, coupled with the Apple iPhone ramp and modest further inroads by SSDs, should swing the NAND supply/demand equation back towards, but not into equilibrium."

For calculative purposes, Gauna is modeling the Cupertino-based iPod maker to ship 2-3 million iPhones and 3-5 million flash-based video iPods during the second half of the year, which he believes will close NAND oversupply from a 7-9 percent risk to a 2-4 percent risk. The end result, he added, will be some NAND price firming towards the second half of the year followed by some weakness in early 2008 — a similar patterned experienced in late 2006 to 2007.

The analyst's comments are in line with those of a recent AppleInsider report, which revealed that Apple's sixth-generation video iPods are tracking for release during the third quarter and that the company was anticipating a switch away from hard disk drives (HDD) and towards solid state drives (SSD) based on NAND flash.

In his note to clients, Gauna noted that his checks suggest OEM exploration of NAND SSDs is proceeding with Apple, Dell and HP all in a position to announce NAND-based sub-notebooks or ultra portables later this year. However, he said it's unlikely those devices will hit price points that can drive broader adoption until 2009 and therefore the immediate effect on the 1.8-inch HDD market will be limited.

"On the NAND front, 4GB and 8GB iPhones, coupled with the potential for 16GB and 32GB NAND-based iPod Video players, have the potential to swing the NAND industry back towards supply/demand equilibrium in 2007," he wrote. "While the implications are negative for 1.8" form factor hard disk drives, we believe new storage demand created by iTunes and similar business models, makes for a healthy HDD market in total and we see only modest potential for NAND SSD penetration into the 2.5" and 3.5" HDD markets."

According to the UBS analyst's calculations, a 32GB version of Apple's video iPod, with the ability to hold some 40 hours of video, would need to command a price point of $399 to reach acceptable margin levels for the consumer electronics maker.

"If we consider that current iPods with the ability to play video retail at $249 and $349 price points, and could move to $199 and $299 levels with normal Apple pricing cuts, we believe it is possible that Apple could keep its flagship iPods in the market at these more moderate price points as it ramps a new video version at higher ones," he explained.

Gauna upgraded shares of SanDisk to a Buy from Neutral with a new price target of $53 per share.

This is very conservative. If my pesonal experience is any indication, the iPhone will probably exceed demand (and Apple's own conservative forecasts). What do I mean by personal experience?
1. The high school students where I work are constantly talking to their friends about who is getting one (many of them are not mac users). 2. The same thing is going on at my university.

Hell, I'm even getting one eventually (2nd gen) and I don't even need a phone (currently tied down to a Razr/with T-mobile). The iPhone makes my Razr look like an obsolete POS.

By my reading, this is all speculation based on the likely mass availability of 16GB and 32GB NAND in the near future. Obviously, if Apple can put out an iPhone/iPod product with NAND, they can just as easily put out one without the phone and with more memory.

The real issue is whether Apple wants to market a video iPod alongside the iPhone or just ride the iPhone for a while.

Isn't it possible that the 16GB and 32GB NAND is to bump the nano from 2/4/8 to 8/16/32 without the introduction of a widescreen iPod? I mean, after all, the iPhone IS the widescreen iPod.

I think there's eventually going to be a widescreen iPod apart from the iPhone, but why would Apple want to come out with it 3Q and compete with its own product launch of the iPhone?

I think Apple's year will lay out something like:

* Leopard preview event in April, shipping in May;

* iPhone launch in June;

* an October release of a single 32GB widescreen iPod for $399 along with more movie studios in iTunes;

* a 2G iPhone and a TV subscription plan for Apple TV at Macworld in January '08.

We're due for iPod refreshes and a Beatles announcement, so maybe we'll get a one-off music event somewhere along the way. It's going to be a fun year!

Apple contracts with something like five flash IC makers, and they can probably have anyone else solder together modules for them if they like. They probably don't need a controller chip, the ARM chip can pretend to be one if they like. I think this is what they do with the nano, the central chip on the nano does the work to make the computer think it's a hard drive. I don't see why SanDisk would be the only beneficiary of an upgrade.

I don't see how the widescreen iPhone is the widescreen iPod. Certainly they are substitutes since one involves a cost increase, phone, and the corresponding phone servce (from cingular), while the other is a music player. I don't think they will compete against each as the serve different market niches.

Sorry, the person who thinks the iphone is the vPod is wrong. There WILL be a discrete, wide screen, video ipod. Additionally, the switch to solid state drives is inevitable, but there isn't a chance apple is getting rid of the 1/8 any time w/in the next year. Apple will upgrade the Nano to 32, give it a wide screen, and they will drop the low end HDD Video. The wide screen Nano"W" will take the 249 price point. As for large capacity "Flagship" players, apple will introduce a full screen 120g video ipod several months (Holiday Season) into the iphone ramp. Trust me, I know.

Apple contracts with something like five flash IC makers, and they can probably have anyone else solder together modules for them if they like. They probably don't need a controller chip, the ARM chip can pretend to be one if they like. I think this is what they do with the nano, the central chip on the nano does the work to make the computer think it's a hard drive. I don't see why SanDisk would be the only beneficiary of an upgrade.

Sandisk doesn't actually sell to Apple. But it would benefit (like other NAND-flash makers) because, like you said, NAND-flash has essentially become a commodity product that more or less anyone with the right equipment can made. Sandisk's problem of late has been a general oversupply in the flash market (since fall '06, when Apple didn't upgrade the capacity of the 4gb nanos to 6gb, like had been expected). Apple sucking up more flash, though, would lead to higher flash prices.